Oil Price Fundamental Daily Forecast – Will Kuwait and Iraq Replace Lost Iranian Output?
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower early Friday, but remain within striking distance of multi-year highs hit in the previous session. Looming U.S. sanctions against major oil producer and OPEC-member Iran threaten to drive prices even higher over the near-term as traders prepare for an even tighter supply situation.
At 0728 GMT, July WTI crude oil is trading $71.13, down $0.18 or -0.22% and July Brent crude oil is at $77.19, down $0.28 or -0.36%.
Forecast
The overnight price action suggests the speculative buying initiated by President Trump’s decision on Tuesday to walk away from the Iran nuclear deal has tapered a bit as investors reassess the situation.
On the bullish side of the coin, the U.S. plans to re-impose sanctions against Iran, which produces around 4 percent of global oil supplies. The sanctions will be taking place at a time when OPEC-led production cuts have already tightened the supply situation. Additionally, global inventories have tightened amid strong demand from Asia.
Speculators are betting heavily that the sanctions will lead to supply disruptions that will make crude oil an attractive enough asset to drive prices to $80 -$100 per barrel later this year.
On the bearish side some traders believe prices won’t move nearly as high because of rising U.S. production and the possibility that other suppliers from within OPEC will step up output in order to counter the Iran disruption. This would essentially end the OPEC-led deal to trim production.
A report from ANZ said, “Investors are increasingly viewing Kuwait and Iraq as the producers with the best ability to raise output quickly in response to any fall in Iranian exports.”
Additionally, there are also some traders who believe soaring U.S. crude oil production may also help fill Iran’s supply gap. According to the U.S. Energy Information Administration, U.S. production hit another record last week by climbing to 10.7 million barrels per day (bpd).
That’s a 27 percent increase from mid-2016 and means U.S. output is creeping ever closer to that of top producer Russia, which pumps around 11 million bpd.
Later today, investors will get the opportunity to this week’s U.S. producing rig count. Energy services firm Baker Hughes is expected to report another weekly increase.
This article was originally posted on FX Empire
